Accident! The U.S. Treasury Department's Q2 loan expectations have been significantly increased by more than triple, but after excluding the impact of debt ceiling, it will not increase but fall instead of increasing.

Source: Wall Street Insights

The US Treasury Department said in a statement on Monday that it has significantly increased its estimate of federal borrowing for this quarter due to initial cash reserves being much lower than previously expected, mainly because the US Congress has not yet raised the federal debt ceiling.

Reduction in Cash Reserves and Increase in Borrowing Scale

The US Treasury Department currently expects that net borrowing between April and June will reach $514 billion, higher than the $123 billion forecast in February this year. As usual, the Treasury Department previously assumed that the debt ceiling issue would be resolved (i.e., raised or suspended) when making the forecast, but the US Congress is still in consultations on this issue.

This borrowing estimate is $391 billion higher than that announced in February 2025, mainly due to a lower cash balance at the beginning of this quarter and a projected decrease in net cash inflows. This pressure is partially alleviated by the $60 billion brought about by quantitative tightening (i.e., reduced Treasury bond redemptions).

For the third quarter from July to September, the US Treasury Department expects net borrowing to reach $554 billion, still on the premise of assuming a cash balance of $850 billion at the end of the quarter and assuming that the debt ceiling issue can be resolved.

In February, the US Treasury Department expected the cash balance at the end of March to be $850 billion, but the actual balance was only about $406 billion. Under the limitation of the debt ceiling, the US government cannot issue new net Treasury bonds. The US Treasury Department on Monday continued to maintain its previous forecast of a cash balance target of $850 billion at the end of June, assuming that the debt ceiling can be resolved by then.

The federal debt ceiling came back into effect in early January. If the US Congress fails to raise or suspend the debt ceiling in a timely manner, the US Treasury Department will be forced to significantly cut the issuance of short-term Treasury bills and use existing cash reserves to maintain expenditures. As of last Thursday, the Treasury Department's cash balance was approximately $563 billion.

Regarding this, the financial blog Zerohedge analyzed that all of this is completely within expectations, and the borrowing data has been severely distorted due to the debt ceiling issue. If the debt ceiling issue remains unresolved this quarter, the Treasury Department's issuance is likely to be lower than the estimate. Similarly, the estimate for the third quarter assumes that the cash balance at the beginning of the quarter returns to normal, but once the debt ceiling is lifted, the actual issuance may rise significantly. (If the debt ceiling is not resolved for a long time and leads to a US default, it will be more than just an issue of debt issuance.)

Analysis: DOGE Shows Results, and the Actual Borrowing Demand Decreases

At the same time, the US Treasury Department mentioned in the note of the borrowing demand section,

"Excluding the impact of the lower-than-expected cash balance at the beginning of this quarter, the borrowing estimate for the current quarter is actually $53 billion less than that announced in February."

Zerohedge analyzed that this shows that the "DOGE," the Department of Government Efficiency led by Musk, is indeed playing a role, the fiscal situation has improved, and the US financing demand is actually decreasing. The total revenue is slightly higher than the level of the same period last year, and the expenditure is close to the lower end of the historical range. But in the long run, this improvement is still not enough to have a significant impact.

The US Treasury Department will announce the issuance plan for Treasury bonds (notes and bonds) in the coming months on Wednesday. The market generally expects that this plan will remain roughly the same as before. Some Wall Street analysts speculate that the Treasury Department may adjust its cash management strategy at some point in the future and adopt a slightly smaller cash buffer scale than the current target.

Zerohedge said that although the fiscal inflow may deteriorate in the coming quarters, especially if there is a severe recession, the current risk is considered relatively low. At the same time, economists at Deutsche Bank estimate that even if Trump extends the Tax Cuts and Jobs Act (TCJA) and launches other policy proposals, the additional tariff revenue this year may largely offset the impact of the deficit. However, next year and beyond, the deficit is expected to expand significantly relative to the baseline projected by the Congressional Budget Office.

Looking ahead to the quarter from July to September 2025, the Treasury Department now expects to borrow $554 billion net through the issuance of marketable Treasury bonds held by the private sector, assuming that the cash balance at the end of September is still $850 billion. It is still unclear whether the Treasury Department can restore the cash balance to the "normal" level of $850 billion, as this completely depends on when the debt ceiling agreement is reached. The view of Steven Zeng from Deutsche Bank is that he has postponed the forecast of the debt ceiling "X-date" (i.e., the last date when funds run out) from the end of July to mid-August, which means there is still some buffer, but it is not enough to postpone the crisis to the fourth quarter without serious consequences.

Historical data shows that in the first quarter of 2025 (as of March 31), the US Treasury Department borrowed $369 billion net through the issuance of marketable Treasury bonds held by the private sector, and the cash balance at the end of the quarter was $406 billion. The Treasury Department had predicted in February 2025 that the borrowing for this quarter would be $815 billion, assuming a cash balance of $850 billion at the end of the quarter. The difference between the actual borrowing and the forecast of $446 billion mainly comes from the lower cash balance. But if the difference in cash balance is excluded, the actual borrowing is only $2 billion lower than the estimate in February.

In other words, "DOGE" is playing a role: In the first quarter, the US debt financing demand was $2 billion less than what the Treasury Department predicted in February, and in the second quarter, it is expected to be $53 billion less than the estimate three months ago.

Zerohedge believes that this unexpected decrease in debt issuance (because the debt ceiling issue will eventually be resolved anyway) may be the reason why the yield on US Treasury bonds fell all the way to 4.21% today, hitting a new intraday low.

Disclaimer: The views in this article only represent the personal views of the author and do not constitute investment advice on this platform. This platform does not make any guarantees regarding the accuracy, integrity, originality, and timeliness of the article information, nor does it assume any liability for any losses caused by the use or reliance on the article information.